Bounce rate of auto debit transactions remains high amid lenders’ claims of improved collection efficiencies

Is there rising financial stress amongst small and retail borrowers after the end of the loan moratorium, despite banks and NBFCs reporting collection efficiencies at about 90 per cent of pre-Covid levels?

Anecdotal evidence as well as a quick search of social media indicate that many borrowers indeed continue to face headwinds due to job losses and salary cuts amid the ongoing Covid-led economic uncertainty.

This also seems to be corroborated by data from the National Payments Corporation of India from its National Automated Clearing House (NACH) platform, which reflects the elevated number of unsuccessful auto debit requests.

The bounce rate of auto debit transactions has been hovering over 40 per cent since June as against 31 per cent at the start of 2020 before the pandemic.

In November, of the 8.69 crore auto debit transactions recorded on the NACH platform, 3.52 crore were unsuccessful. In comparison, just 2.4 crore transactions out of 7.77 crore requests were returned in January.

Collection vs bounce

Lenders say this data is not representative of the ground reality, and that there are more defaults in loans given by fintech companies.

“When we came off the moratorium, we saw slightly higher bouncing in September, but since then there has been month-on-month improvement,” said Sumit Bali, President and Head, Retail Lending and Payments, Axis Bank, recently, adding that the bank’s collection efficiency is at 97 per cent. “A lot of fintechs doing small-ticket loans skew the bounce rate,” he further said.

A recent report by SBI Ecowrap also noted that NBFCs, which have lower collection efficiency, generally account for high bounce rates. “Besides NACH debit there are multiple modes of payment like cheques, cash,” the report said, adding that the trends for next couple of months need to be studied before deciphering the quality of retail book.

“The good thing is that the per-transaction return (value) has also declined to ₹7,495 in October 2020 compared to ₹8,071 in April 2020,” it further said.

Fintech factor

However, fintech companies, too, claim that their collection efficiencies have slowly improved, and a lot of these bounces are due to temporary cash flow issues. Customers usually pay their EMIs over the next two-three days.

Akshay Mehrotra, Founding Member, Fintech Association for Consumer Empowerment, and co-founder and CEO of EarlySalary, said bounce rates have been high across the industry.

“Bounce rates across the industry jumped not by B2C lenders, but by SMEs. On the aggregate level, DPD-30 was almost double of what it was pre-Covid,” he said.

He further pointed out that the number of fintechs grew by at least four times between January 2019 and January 2020, leading to higher number of NACH transactions.

“We believe the bounce rate is coming down. At EarlySalary, the bounce rate in November was 30 per cent lower than March,” he said.

Bankers said a clearer picture would emerge from January after the restructuring window closes this month. By then, more data on NACH will also be available to highlight the trend.

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